The retail broking industry’s top line could more than double over the next five years, according to the estimates of consultancy firm Bain & Company.
The industry, which facilitates stock market trading for investors, has already witnessed its revenues double from Rs 14,000 crore during 2018-19 (FY19) to Rs 27,000 crore in 2022–23 (FY23), reflecting an annualised growth rate of 17 per cent.
“This growth has been fuelled by the emergence of India’s mass-affluent and affluent segments, coupled with increasing financial literacy.
"The number of dematerialised accounts has trebled since FY19, reaching an impressive tally of 115 million in FY23, thanks to the heightened interest sparked by the Covid-19 pandemic,” said Bain & Company in a note.
Faster digital onboarding and an ultra-low cost of trading due to the advent of discount brokerages have also propelled the industry’s growth.
“The Covid-19 pandemic served as a turning point for retail participation in capital markets, with digital-first players revolutionising the industry.
"However, the industry’s average revenue per user (Arpu) decreased from around Rs 6,000 in FY19 to Rs 5,000 in FY23,” added the report.
Bain & Company notes that the broking industry has benefited by managing to penetrate beyond the top cities.
“Greater financial literacy, frictionless customer onboarding, and proliferating user-friendly digital platforms have led to a substantial jump in the number of young investors, accounting for 70–80 per cent of the active clientele of digital or discount brokers within the 18-30-year age group.
"Similarly, 70–75 per cent of newly acquired customers for bank brokers are also below 30, albeit with lower activation rates,” the note observed.
The country’s top five brokerages are all discount brokerages, accounting for over 60 per cent of the market share.
Going ahead, however, Bain & Company expects industry players to shift their focus away from pricing.
Also, it believes bank-backed players will be better positioned.
“Looking ahead, the battle in the retail brokerage industry is expected to shift from price wars to value proposition-led growth in market share and profitability.
"Developing targeted digital marketing capability will be the key differentiator, as the efficiency of performance marketing will drive the cost-effectiveness of acquiring and engaging new clients.
"Identifying and accessing high Arpu prospects can be a hurdle, but bank brokers will have an upper hand in this as they can leverage their parent bank and have easy access to high-value customers,” said Misha Pratap, partner and leading member of the financial services practice, Bain & Company.
